It is much easier to pass a verdict on the Greens’ new “rent-to-buy” housing package. It is really a huge state house building programme in drag.

Under the policy, low-income families would occupy new, government-built $300,000 homes without having to stump up a deposit or take out a mortgage. The families would instead be required to make a $200 weekly payment to the Government to cover the interest cost on the Crown capital used to build the house. The occupiers would have the option of making additional payments to buy equity in their home.

The Greens won’t say how many such houses they want to build. They say the scheme would complement Labour’s plan, and the Greens’ share of those 100,000 homes would be decided during coalition negotiations.

The policy is easy to comprehend. Its generosity makes it extremely attractive. It seems to make sense.

Wrong. It is a dog of a policy. It should be put out of its misery.

The slow repayment of capital by occupiers under the Greens’ scheme would require the Government to go on a continual borrowing binge. There would be huge problems of fairness in terms of cut-off points for eligibility.

There is no incentive or requirement to pay off capital. Occupiers would have the house for life and enjoy cheap rent at $200 a week. It is not clear whether that payment would increase and by how much when interest rates increased – as they inevitably will. It is not clear who would pay the rates and the general maintenance costs.

Labour’s scheme at least imposes discipline on buyers to maintain the value of their properties by requiring them to take out a mortgage.

The Greens’ policy should carry a health warning. It flashes “unintended consequences” in neon – consequences that would probably have to be picked up by the taxpayer.

Labour has officially welcomed the Greens’ contribution to the affordable housing debate. Instead, it should quarantine this Nightmare on Struggle Street before it taints its own policy by association.

Labour and Greens seem to be competing with who can come up with the biggest bribe, and hope no one notices that the massive borrowing needed by the taxpayer will plunge our credit rating down the gurgler.

Surely what we need is less borrowing, at a time when Governments around the world are crumbling under the burden of their debt.

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This entry was posted on Thursday, February 7th, 2013 at 2:00 pm and is filed under NZ Politics.
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Armstrong has since expanded on his criticism of the Green housing policy:

The Greens are perfectly entitled to promote such a policy. But from the moment I read it, I have thought it potentially has huge problems in terms of introduction, workability, equity and fairness.

Prompting my thinking to some extent was memories of a decision by the Labour Cabinet in the mid-1980s to let the old Post Office Savings Bank offer mortgage finance to people who were not the bank’s customers. (In those days, you had to be a customer to get even a sniff of mortgage finance.)

The result was that before the bank’s management realised it, the bank was drained of cash from its mortgage fund such that it had to put a temporary stop to lending to long-established customers. You can imagine the furore. As Postmaster-General, Jonathan Hunt copped the flak.

In other words, the politics of unintended consequences.

Another factor was that the Greens’ scheme is a shared equity scheme. I was unable to find another such scheme anywhere which is skewed so heavily in favour of the buyer. That may be neccessary if you are targeting home ownership at the very bottom of the income scale.

But it carries big risks for the taxpayer.

When you are talking of borrowing $300 million a year —- as the policy hints — the risk is quite high. I know that at this stage, the policy is in discussion paper form. But there was little by way of detail, leaving an awful lot of questions.

The Greens’ overall policy objective is clear. But this “motherhood and apple pie” of a policy is so warped all round, that it would have to be canned before long. I think they are guilty of a serious political crime — falsely raising people’s hopes and expectations on housing, knowing they are not going to be able to deliver.

And it’s not just the Green (and Labour) housing policy that should cause concern. Greens are currently promoting and promising:

– A decent start in life
– A good job with a living wage
– A choice to not be in paid employment but still get a living wage
– A decent ‘home for life’ (rented or ‘owned but provided by government) no matter what your financial circumstances

And of course restricting farming, mining, drilling, roading etc etc.

Greens were fine as a fringe party promoting fanciful ideals. But now they see themselves as a serious player in Government far more serious scrutiny is called for.

Manolo – serious question. Has the money borrowed by national had a negative impact on anyone thus far? as long as they stop borrowing when things get better then i think its the right move. sure, it doesnt go well with right wing ideology.. but shit happens. i personally think i would have made less money if national werent borrowing.

as for this greens policy – they are just batshit crazy. ive seen the housing supplied by these great communist countries. not sure im keen. wonder if i would be turfed out of my estate? bad Dime! sitting there! making money!

Greens have a curious disconnect between party members who are mainly academic middle class and their supposed target constiuents who are poor, under privileged. On a post here recently it was pointed out that Maori suport for Greens is very, low even though they promise handouts and adherence to the extreme Maori version of the ToW.

The latest campaign launched be Metiria Turei targets the large number of current non-voters – most of whom couldn’t give a stuff about politics and spend money on pokies and lotto to try and win their dream lifestyle. That’s not so dumb, there’s more chance of that succeeding than Green policies.

So the Greens enormous government debt plan will likely cause a credit downgrade. Which will cause interest rates to rise for all NZers. Which will make housing for everyone who doesn’t qualify for one of the electoral bribe houses more expensive. That doesn’t seem like a good plan

Besides which… You just know that the only way to build these homes by the tens of thousand is to create new Mangeres or Pomares. If we’re lucky. Or to build NZ equivalents of London’s Deptford if we’re not.

Waitakere man will see through this policy and treat it as the bribe that it is.

As some-one has noted elsewhere what will be built for $300k will be the tower blocks that used to blight the English landscape from the late ’50s and now blight the landscape at the top of Hobson Street and Nelson street in Auckland.

“firming up their base”?
Don’t know about that. The greens had some sort of picnic at Mt Eden a week or two ago. It was notable for the lack of people present.
I don’t think the base is what it is cracked up to be.

There is a reason there are people out there that need this sort of scheme. They cannot get finance anywhere to purchase a home, not even from third tier lenders. We are not talking about the people the Herald trots out here, they want to live in Epson, Grey Lynn, Mt Eden in a three bedroom + with a backyard, not a shitbox apartment. What makes the Greens and Labour believe that the people who end up in these houses will in fact not default on any mortgage they get? Who will give the mortgage with what security? When these people are sold up under a mortgagee sale, we are back to square one, except the government has take on significant risk that they didn’t previously have. Fannie Mae and Freddie Mac anyone?
Having worked in the finance industry and watched people who are given loans squander them and then run from the repayments, I have no confidence that either of these hair brained schemes will work (even if the structure was workable theoretically).

Greens propose allowing people to ‘buy’ houses at non-commercial interest rates, no deposit, and no requirement to pay back principle in a policy they call ‘homes for life’.

10k houses at an average of $300k is $3b – Labour said by selling the houses they build the capital to fund this will keep rolling over.

But Greens want to tie up the capital by effectively giving people houses to live in for life.

Annette King said:

Labour welcomed the Greens housing policy, I should know as I did most of the interviews!

The Greens said their policy built on Labour’s, making the point a govt needs to lead the build of affordable housing to help people into. Thats what KiwiBuild does. There is no commitment from the private sector to fund first homes for NZers.

@In Vino Veritas at 3.01 pm
I fear that you haven’t read the Green policy.
There is no mortgage. The Government is going to build them and, basically rent them to the occupant for $200/week.
If the resident coughs up another $100/week they will be given title at the end of 25 years. They don’t HAVE to pay of any principal at all.
Meanwhile the poor old taxpayer will no doubt have to cough up for the rates, the insurance, the repairs and probably have to pick up the bill for mowing the lawns. The $200/week is only supposed to pay the interest, which they claim is only at 3.5%, on the money spent on buying the house. There isn’t any return on capital at all.

And added to that, for those who don’t want to take the risk of being given a ‘home for life’ they can opt for the ‘rent to life’ option. Tenants will have the right to ask for improvements and the right to renew their contract anually.

So that could also be called ‘landlord for life’, where the tenant gets a decent home to rent worry free for as long as they like, with improvements so it’s a decent home.

And all the greedy landlord’s profits will be taxed more (to pay for all the houses people own plus of course the “living wage/work optional” policy), plus CGT of course if the tenant dies so they get to sell their investment.

John Armstrong saw through this quickly, but most media don’t know or don’t care.

It clearly details that assumptions of the $200 cost as being the cost of $300k capital to the government at 3.5% government bond rate. Payments over and above this cost are then effectively paying off the principal, which then reduces the cost of capital portion. Essentially it’s the government taking out a mortgage on the home, with the tenant paying the costs of that capital. Just like they used to do with the State Advances scheme for example.

Thus, clearly the $200 would be higher should the government bond rate be at a higher rate, or the cost of the home be higher. Further, there is no ballooning cost for the government: The cost of government debt is covered by the tenants, and the tenants are then further encouraged to pay off the principal as well.

Now, one could argue whether this is the sort of thing the government should be borrowing for. It seems to me there’s a fairly clear agreement that the housing market in NZ has quite a few issues with it, such as very few affordable houses being built with very little use of economies of scale, and many people investing in housing essentially for capital gain. It seems to me that investing in the building sector is a nice way to stimulate growth, drop house prices overall and increase economies of scale, whilst also ensuring more folk live in houses that are warm and healthy.

If you read all what Armstrong has said I think it shows he understands the policy.

The flexibility of Progressive Ownership will
allow families to increase, or suspend, equity
purchases as their financial circumstances
change. There will be no mortgage, so no risk of
default or families losing their homes – they could
just pay the basic rent if times get tough – and no
penalties for buying the equity more quickly.

What’s to stop them not making any ‘equity purchases’ and investing savings elsewhere where they may easily exceed the 3.5% rate they are paying?

There is no mortgage. Who is liable for insurance, repairs and maintenance etc?

New roof? New carpet? New stove? New hot water cylinder? Insulation? Heat pump? Who decides what is renewed?

The operational costs of the share equity
programme to the Crown will be minimal
Housing New Zealand spends $1,000-$2,000
per house on administration and rates are
another $2,000 per house on average.

So we are gifting that in additional to stumping up with the capital and taking all the risk?

lefty liberal – you do realise that the costs of owning a home are other then the mortgage? Do you think those said costs will be affordable for the buyer’s in question? You also realise that the assumption that the government bond rate will be 3.5% forever is pretty risky? Do you understand that when you give things to people who have no collateral, the reason they have no collateral is generally because they are the people who never give the stuff back?
Have you ever seen government housing that is attractive? Do you think it’s going to be fair as to who gets a free house effectively with no deposit and who doesn’t? Do you think the houses are going to be able to build, zoned, etc etc for what they say they will? How do you think the cost of this scheme is going to be paid for? Do you think 25 year olds with sociology degrees, and lets be honest, that is who this is aimed at, not the really needy whose needs are a bit lower level, deserve a free house? at twenty five?

You do realise, that this hair-brained, stupid, unworkable, terrifically unfair and hugely risky, wasteful scheme would turn the Government into one huge set of parents constantly having to bail out the kids who never pay it back? What a piece of shit policy this is.

leftyliberal>It clearly details that assumptions of the $200 cost as being the cost of $300k capital to the government at 3.5% government bond rate.

So the government will borrow money at the bond rate and, essentially, lend it to sub-prime borrowers at the same rate. I’m surprised that neither you or the Greens have spotted the whopping great economy-buggering problem with that practice. But assuming it was a great idea, why not abolish private lending? The government could borrow unlimited amounts of money at the bond rate and lend it at the same rate to anyone who wanted to buy a house, a car, or to set up a business.

I suspect that once the Green-created sub-prime housing bubble burst then Norman would pay off the tens-of-billions of dollars of bad loans with his printing press.

I’m confused about how the Greens manage to advocate on behalf of the really REALLY bad policies that have fucked up other countries. They look at the perpetual quantitative easing that has given Japan 25 years of recession, and want to do the same. They look at the sub-prime crisis that has brought the US economy to its knees, and want a government-run sub-sub-prime housing market in NZ. They look at the windmills that have given Europeans really expensive electricity, and want to build them in NZ. Even tho they’re the modern equivalent of the Easter Island statues, destined to be around for hundreds of years as monuments to stupidity. Don’t Greens have any ability to spot a really bad idea?

Quite apart from the dishonesty of buying/developing land and building houses for $300K in the main centres (impossible), it’s being dishonest right out of the box, $200 per week on $300K = 3.47% interest rate (not 3.5%), TODAYS Govt 10-year bond rate = 3.78%. So the poor old taxpayer would be stuck carrying a 31 point margin for the first 10 years ($9300 loss write off), and thats just today, it will likely be over $10,000 at the end of the month. So will they really set the per week “rent” rate to cover the true interest cost per house per the actual Govt bond cost per the exact day they settled the borrowing? Because they would have to for it not to cost the taxpayer AND they would have to each time the bonds were rolled over plus of course you would get the further complication of pooled borrowing/staggered settles.

For comparison lets see some recent historic rates:
Dec 2010, 10yr Govt bond = 5.99% (cost = $346 per week)
Dec 2007, 10yr Govt bond = 7.78% (cost = $449 per week)
The historic average Govt 10-year bond rate (over the last 30 years) is actually = 8.1%.
And those rates were with the NZ sovereign risk rating of AAA (its dropped now to AA/AA+ which meant approx. an extra 15 points added to interest rates).
How loud do you think the tenant would squeal when their weekly basic minimum rent jumps from $200 to $450 five years after they moved in?

@leftyliberal. What part of, “Competing with the private sector shrinks the tax base”, don’t you understand?
If you take profits out of the private sector then you reduce the amount of tax you can play santa with.

Oh Fer.
As in Oh Fer Fucks Sake. Even a housewife like me can work through the consequences using common sense.

State housing = ghettos.
If state housing was such a winner then council flats wouldn’t be skody heaps of rubbish filled up with bottom feeders.
No-one who wants to own an asset will be seen dead in these.

Finally a Green policy that the MSM should tear apart and show the country that this is complete bullshit.
They have had it to easy for far to long and hope this time, the MSM do the numbers on this fucking stupid policy !!

Surely what we need is less borrowing, at a time when Governments around the world are crumbling under the burden of their debt.

I’m afraid logic has never been important when a wealth re-distribution policy is so large, will affect so many people for the foreseeable future, will become ever associated with the party that introduces it, and will be as difficult to eviscerate as the interest-free student loans and the nuke free position have both become.

Bugger.

It really does take a special kind of c**t to come up with something like this, doesn’t it. Someone who doesn’t give a fuck the people who pay for the entire thing receive absolutely zero benefit from it. I mean the only possible thing anyone earning over 60k will ever get from it is a few less people burgling their home, but nothing more than that. In return for what d’ya reckon, how much of an increase will it require, from say 33 to say 49%? And we receive no benefit from that, it’s not even like a road, which we can all use.

Maybe we should make Liarbore and Gweens put in a clause that said every family who won a house had to provide bed and breakfast to any taxpayer who happened by, without fail, lest they lose the whole thing and have to give it to the next person on the list.

That would run the whole country through pretty quick, wouldn’t it. Pretty soon, problem solved, no more eligible people.

Awwwwwwwwww.

But you got to admire the lefty manipulation though. First Liarbore announces theirs and people think then the Gweens go all extreme, and put up a strawman, which the media attack, never mentioning Liarbore’s scheme, which looks attractive and gets the discussion happening so people start embedding the concept. That’s what they’re doing. Now. Conservatives don’t use it the same way which is a pity because we could be much successful than we are, if we did.